Start Building Up The Magic Formula Portfolio

After finished gone through The Little Book That Beats The Market, I find out that the following Magic Formula promoted by the book author, Joel Greenblatt make a lot of sense to me:-

Buy shares in good businesses (ones with high returns on capital) but only when they were available at bargain prices (priced to give us a high earnings yield)

So I decided to give it a shoot by building up $5,000 Magic Formula Portfolio on today, April Fool of 2014. I plan to build up 12-stocks portfolio gradually by buying 3 stocks on the first market day of a quarter. For example today is first market day of quarter 2, I bought 3 stocks today. I will buy 9 more stocks on next 3 quarters and should filled up the portfolio by 1 Jan 2015.

What to Buy
I created the stock list with the following steps: 

1. Retrieve the list of stocks from http://magicformulainvesting.com/ where the market capitalization is between $88M to $1,000M ($1B)
2. Further narrow down the stocks with F-Score >= 7 by using GuruFocus.
3. Retrieve DER and DY of stocks from http://money.msn.com/stocks/. Lower DER and higher DY take precedence.

 

Today 25% of portfolio fund allocated equally to EBIX, PETS and SPRT.

When to Sell
The portfolio will be reviewed on March 31, June 30, September 30, December 31 of the year. I will sell the stocks of the portfolio which meet any criteria below:

1. The stock no longer exists in the list of stocks of http://magicformulainvesting.com/
2. There's new set of stocks created by following 3 steps above to replace the portfolio's poor performers (Sell the losers; Keep the winners.) stocks that hold more than 1 year (Validity of this criteria to be determined on 1 Jan 2015).

I'd love to hear your comments!

Happy Investing! :) 

Version History 
29 Dec 2014 Edited item 2 of When to Sell
31 Dec 2014 Edited item 2 of What to Buy. Use GuruFocus to find out F-Score instead of http://www.grahaminvestor.com/quotes/.
25 Mar 2015 Added a description of the Magic Formula